London, England -- (SBWIRE) -- 04/07/2011 -- Trading conditions have been tough for hotel businesses across the UK since the middle of 2008, when the effects of the global economic crisis first started to filter through to the hotel sector. As consumer confidence started to waver, occupancy levels declined and revenue per available room (RevPAR) started to fall.

Fortunately, 2010 was the year in which a sense of stability returned to the hotel market. The trading landscape, although far from easy, was much clearer than it had been over the previous two years and hotel businesses were able to focus on improving revenue, whilst keeping a watchful eye on costs. The fall in regional occupancy levels gradually slowed and RevPAR showed slightly positive growth during the second half of the year, albeit from a low base.

Whilst hoteliers were able to enter 2011 with much greater optimism, the big question they should ask themselves now is: “Is my business in the best position to make the most of an upturn in trade?” The vast majority of businesses have cut their costs dramatically in order to survive the tough trading conditions, but the severity of these cuts is of major concern to the hotel sector. If too much cost is driven out of a business, service quality, employment levels and the general condition of the hotel could all be compromised.

Capital expenditure (capex) is often the first thing to be cut during a downturn, as hoteliers choose to focus on short-term survival over long-term strategy. A significant number of hotel owners either cannot afford, or ignore the ongoing need for, capital expenditure programmes.

The lack, or misallocation, of capital expenditure budgets could see a significant number of hotels miss out on what is finally becoming a more distinct possibility — an upturn in trading. Hoteliers who have been able to invest in their hotels will be in a much stronger position to compete for returning customers than those who haven’t. Hoteliers with franchise or brand agreements should also beware — a hotel that hasn’t received sufficient investment is at risk of affecting a brand’s reputation, which is of significant concern to brand guardians who are looking to protect their brand equity.

Lenders are also taking an increasingly active interest in the capex and FF&E (Furniture, Fixtures and Equipment) reserves of the hotels that they have an interest in, to see whether the funds are being used as intended, or as a means to mitigate trading shortfalls. Lenders may be willing to fund capital expenditure programmes, in return for greater stakes in hotel businesses, to avoid finding themselves with permanently impaired assets on their books.

Employment levels and service quality should also be key concerns for hoteliers this year. Whilst we appreciate that staff costs have risen, as the national minimum wage has increased, hoteliers’ cost saving initiatives could have a detrimental effect on staff retention levels and service quality.

The behaviour of consumers over the last few years has surprised many in the hotel industry. Budget hotel operators were expected to grow market share as customers traded down and although there was growth in the budget sector, it was perhaps not as great as expected. In fact customers chose to take advantage of some of the value deals on offer — in the middle and at the luxury end of the hotel market. Value consciousness has been one of the key themes over the last two years and customers continue to seek exceptional value deals — regardless of whether they are staying overnight, visiting a hotel for lunch, or enjoying a few drinks in the bar. Customer expectations are constantly evolving, so hoteliers need to update what they are offering to stand the greatest chance of winning repeat business.

Fortunately, there is some good news for hoteliers who have been forced to make up for a shortfall in corporate trade by offering low cost leisure deals. Many of the regional operators we speak to are reporting encouraging growth in corporate demand, as business customers increase their conference, training and events expenditure. The return of corporate trade, which is traditionally more profitable, will hopefully mean that hoteliers will become less reliant on low cost deals and special offers.

We don’t deny that 2011 will be another challenging year for the hotel industry, but conditions have certainly stabilised and there is plenty of evidence to suggest that they will start to improve. Hoteliers may feel a little battle-weary after a difficult few years, but they need to take a fresh look at their businesses and ready themselves for the upturn — they simply can’t afford to stand still and miss out on the opportunities it will bring.

Christie + Co is a leading business agent specialising in businesses for sale across a range of sectors, including hotels, pubs, restaurants, retail, leisure and care.